Is unemployment money taxable? What about my stimulus checks?
Tax Day is April 15, and COVID-19 has changed a lot when it comes to filing this year. Here are five things to know about how filing taxes for 2020 will be different because of the pandemic.
Listen to the full Life Kit episode at the top of this page for more about filing for the first time and getting all of your paperwork ready.
Due to the pandemic and its economic repercussions, a record 23.1 million Americans filed for unemployment in April 2020. Many were without a job for the first time.
If you filed for unemployment you’ll be receiving this form: the 1099-G. This form lists the total amount of unemployment benefits you received and any amount you had withheld, says Kemberley Washington, a New Orleans-based Certified Public Accountant and financial expert with Forbes Advisor.
Normally, unemployment checks are considered taxable income. But under President Biden’s new stimulus package, the first $10,200 of unemployment benefits will not be taxed for people who make less than an adjusted gross income of $150,000. If you received unemployment benefits exceeding $10,200, “you will have to report this amount on your tax return, unless you’re not required to file a tax return,” says Washington.
If you’re wondering if you’re required to file a tax return, here’s what you need to know: Generally, you don’t have to file taxes if you’re a single individual under 65 who makes less than $12,400 dollars a year — or you’re married, under 65, filing jointly, and earn less than $24,800 a year, Washington says. (There are some other thresholds you might have to adhere to, so if you’re unsure, this IRS form can help. Here’s more information.)
If you received stimulus checks:
Good news: stimulus checks are not taxable. You do not have to pay taxes on any stimulus money you received.
Also under Biden’s stimulus package, a third round of stimulus checks will be going out. The IRS will use your 2019 or 2020 tax returns, whichever is on file, to determine your eligibility. Technically it’s an advance tax credit for 2021, but if you end up making more than the income threshold in 2021, “you won’t have to pay the money back,” says Washington. For most recipients, the latest checks will be for $1,400.
The first two rounds of stimulus checks were based on 2019 tax returns (or even 2018 tax returns, if you didn’t file taxes in 2019, Washington says). If your circumstances changed since you filed those taxes, you might be eligible to receive past stimulus checks retroactively. Or if, for example, “you’re a college student and previously you were claimed as a dependent, then you might be entitled to additional stimulus payment,” Washington says. “Or if you are a family who had … a child or adopted another child.” If your circumstances changed, you can claim the Recovery Rebate Credit on your tax forms.
Part of Biden’s stimulus package increases the Child Tax Credit. The tax credit has increased to $3,600 if you have children under six, and $3,000 if you have children who are six through 17.
If you moved states during the pandemic, remember to file tax returns in both states. The requirements for filing differ from state to state, so make sure you’re clear about what you need for each. “Contact both state tax agencies and determine … your filing requirement,” says Washington. Depending on your circumstances, you may need to clarify whether your move during the pandemic has been temporary or permanent. That may affect how and where you file.
Before the Tax Cuts and Jobs Act of 2017, under President Trump, you could deduct things like your internet or electricity bill if you had to work from home sometimes, for your employer. But you cannot deduct these expenses anymore.
That’s bad news for all the people who had to relocate from their offices to their living room. However, if you’re self-employed or you have a side gig, like driving for Uber or freelancing, you can deduct certain work-related expenses on your tax return.
